What does "economies of scale" refer to?

"Economies of scale" refers to the cost advantages that a company experiences as it increases its level of production. When production scales up, the average cost per unit typically decreases due to factors such as production efficiencies, bulk purchasing of materials, and more effective use of resources. This concept is fundamental in understanding how businesses can grow and compete in the market. Companies that achieve economies of scale can often offer lower prices or enjoy higher profit margins, which can provide them a significant competitive advantage.

The other options do not accurately capture the meaning of economies of scale. Increased expenses as production scales up would contradict the fundamental principle, as economies of scale are about reducing costs per unit. Diversifying product lines and the need for larger warehouse spaces may relate to business strategy and logistics but do not directly pertain to the cost advantages derived from increased production. Therefore, option B is the most accurate representation of what economies of scale is all about.